One measure of allocation success is forgone health, which is analogous to opportunity cost in standard economics. Forgone health is the health that would have been gained by producing the best alternative output to which a set of inputs could have been applied.

As with opportunity cost in standard thought, this sacrifice should be minimized when allocation decisions are made.

ENL’s second measure of allocation success is allocation efficiency (Ea). This is a ratio, expressed as a percentage: the gains from allocating inputs to the selected output divided by the maximum gains that could have been achieved by allocating the same inputs to the best alternative output. That is:

Ea = (Gains/Maximum gains * 100)%

For example, if the estimated gains from an allocation choice are 30 units of health, and the estimated gains from the best alternative are 120 units, then the allocation efficiency of this choice is 25%. If the best alternative is chosen, the actual and maximum gains are equal and allocation efficiency is 100%.

The aim in allocation is to maximize allocation efficiency, and this holds no matter where consumption and production take place. Allocation efficiency thus includes the trade possibility and can help us make complex decisions in an open economy.